Updated outlook confirms accuracy of Drillinginfo's M&A prediction

AUSTIN, Texas, Oct. 4, 2018 /PRNewswire/ -- Drillinginfo, the leading energy SaaS and data analytics company, reports that U.S. oil & gas M&A activity in Q3 2018 surged 250% over Q2 and broke all quarterly records dating back to Q4 2012. The final tally for Q3 is $32 billion, up from $9.1 billion in Q2.

As Drillinginfo correctly predicted at the beginning of July 2018, factors that led to the dramatic increase include:

More than $50 billion of deals for sale as of July 1 largely by motivated sellers.

More than $15 billion of private equity dry powder looking for rapid deployment.

Mandates by Wall Street for public companies to focus on core-of-core to drive free cash flow.

Elimination of the sub-$50 oil price risk with stable to higher pricing on the horizon.

Consensus view of stable to higher oil prices.

In a soon-to-be-released report, Drillinginfo findings show $32 billion in activity during 3Q 2018 which is 76% above the quarterly average of $18.3 billion dating back to 2009. The highlight of the quarter was BP's $10.5 billion strike to buy a portion of BHP's U.S. onshore portfolio (Permian, Eagle Ford and Haynesville) which is the single largest asset level purchase on record and also marks BP's return to offense with its largest upstream buy since buying ARCO for $28 billion in April 1999. BP reportedly beat out Shell for this asset package – a dynamic that solidifies the importance of the U.S. shales as a key portfolio element for global majors. Also during Q3, Permian-focused Diamondback Energy boldly acquired fellow-Permian producer Energen Resources for $9.2 billion – a number just shy of the Permian record $9.5 billion paid by Concho Resources for RSP Permian during Q1 2018.

"We expect U.S. M&A activity to continue at a heightened level," said Drillinginfo Senior Director Brian Lidsky. "The industry is regularly reporting record well results across the U.S. shales as it continues to de-risk acreage positions and advance technology," he said.

"As Wall Street is increasingly discriminating among public companies, the food chain of the big getting bigger is alive and well – shale basin leaders are being rewarded for mastering scale, efficiency and technology. This sets the stage for additional mergers that not only checks all the accretive boxes for the buyer, but also provides sellers upside by joining forces with these leaders," said Lidsky.

"We view the recent Concho and Diamondback examples in the Permian as the start of a trend – not one-off style hits. Shale basin consolidation will be a continuing theme supplemented by occasional major new entrants for those few large and global companies who have not yet established a significant shale presence. Private equity and private companies will continue to play a role in deploying carefully calculated risk dollars to fringe areas and benches within established resource plays plus advancing today's technology to new areas like the Powder River Basin as well providing inventory as they move to divest mode," said Lidsky.

Value ($billion) by Top Plays

Play

1Q17

2Q17

3Q17

4Q17

1Q18

2Q18

3Q18

Total

% Total

% 3Q18

Other/Multiple

$0.2

$0.9

$0.8

$0.8

$3.1

$0.9

$13.3

$20.0

15%

42%

Delaware Unconv.

$13.7

$1.2

$0.6

$1.3

$1.8

$0.7

$11.1

$30.6

23%

35%

Conventional

$1.1

$5.7

$1.9

$4.2

$2.8

$2.8

$2.3

$21.0

16%

7%

Utica

$0.1

-

$0.4

$0.1

$0.1

$1.5

$2.2

$4.4

3%

7%

Midland Unconv.

$4.3

$1.1

$0.9

$0.1

$10.8

$0.3

$1.4

$18.7

14%

4%

Bakken

$0.2

$0.0

$2.0

$0.4

$0.0

$1.4

$0.6

$4.6

4%

2%

Marcellus

$0.8

$9.6

$0.3

$0.4

$0.0

-

$0.6

$11.7

9%

2%

SCOOP/STACK

$0.9

$0.0

$4.1

$0.1

$0.0

$0.0

$0.2

$5.4

4%

1%

Eagle Ford

$3.7

$0.8

$0.4

$1.0

$3.3

$1.1

$0.1

$10.3

8%

0%

Haynesville

$0.0

$0.1

$0.6

-

$0.0

$0.2

$0.0

$0.9

1%

0%

Niobrara

$0.1

$0.0

$0.3

$1.6

$0.1

$0.3

-

$2.4

2%

-

Total

$25.1

$19.5

$12.3

$10.1

$22.0

$9.1

$32.0

$130.1

100%

100%

Note: Included in Multiple/Other Play for Q3 is BP's $10.5 billion buy from BHP which Drillinginfo allocates as follows:

Activity catapulted to $32 billion versus $9.1 billion in Q2 and $18.2 billion quarterly average since 2009 and is the highest quarter since Q4 2012's $37.8 billion.

Interestingly, on the first trading day of Q4 2018, near month NYMEX WTI breaches the psychologically important $75 level, settling at $75.30 (up $2.05/bbl) and the first close above $75 since November 24, 2014 (just before the latest oil price crash).

BP won the prized onshore shale portfolio of BHP for the largest asset level U.S. deal recorded for $10.5 billion, reportedly beating Shell who likely remains on the hunt.

Diamondback Energy buys Energen Resources in a Permian-consolidation play for $9.2 billion confirming that Q1's Concho/RSP Permian $9.5 billion deal was not an aberration of the consolidation thesis.

Permian efficiency wins help boost EERC EnerCom has released its latest Effective Rig Count, examining the state of drilling activity and the reported production from the major shale basins. The Effective Rig Count rose sharply in November, extending the increase seen last month. The EERC is now at 2,907, an increase of 95 compared to the October count. While the[Read More…]